The Need for a Robust IT Vendor Management Strategy
Our discussion discusses how IT vendor management can streamline processes, improve efficiencies, reduce costs, and reduce risks associated with IT.
Whether you can keep many IT tasks in-house or outsource them, there are still some functions that need to be handled by third parties because of their complexity, security concerns, or other reasons. Working with vendors to benefit your company by implementing an IT vendor management strategy is possible.
At its core, vendor management refers to your company’s process for managing external business partners who assist your company in carrying out many IT initiatives. Depending on an organisation’s nature and specific needs, a company will use different vendors.
No matter how many IT suppliers your company relies on, implementing a robust, strategic vendor management program ensures you will receive the best pricing, risk reduction, and services. As well as improving profit, cost management will be more efficient, and customer quality will be enhanced.
Developing a strategy for managing IT vendors
Making a process to select, onboard, and manage your company’s IT vendors isn’t easy, but the long-term efficiencies that get created are well worth the effort.
As you create your IT vendor management guidelines, it’s important to get the buy-in of the IT department, external departments, HR, and management. These guidelines will serve as your go-to guide whenever you hire outside vendors. Please consult with the IT organization to ensure you meet its needs and avoid anything that could undermine the process.
Step 1: Identifying business needs and spending
Assess what you can do internally versus what you should outsource before selecting vendors. Vendors can help fill short- or long-term gaps, whether you lack internal resources, do not have enough time, or need help periodically.
According to Gartner, technology spending will increase 8.6 per cent by 2021 compared to 2020, reaching $4.2 trillion. Vendors that supply products or services are responsible for a large percentage of IT spending, including managed services, cloud-based services, software and hardware. A vendor may provide:
- Cell phones and local networks (LANs) are examples of telecommunications
- Equipment maintained by software companies, such as Microsoft, Oracle, and others
- Services related to networks and help desks
- Hosting and cloud computing
- Custom software development
- Services related to social media
- and leasing equipment.
In Spiceworks Ziff Davis’s State of IT report for 2022, 53% of North American and European businesses predict increased IT spending over last year, and 35% indicate no change. In North America, IT budgets are expected to grow by 31 per cent (compared with 21 per cent in Europe) among businesses aiming to boost tech spending in 2022.”
Step 2: Selecting the vendor
A successful vendor partnership requires finding a vendor who understands your company’s goals and objectives and has the ability to assist you in achieving these goals, which is the next step in your IT vendor management strategy.
Request for Quotes (RFQ) or Request for Proposals (RFP) includes all the details of the services you need from the new IT partner. Formalized documents provide vendors with an opportunity to elaborate on their capabilities and provide a common reference for those planning to submit proposals. RFPs and RFPs should include the following items:
- Executive summary and introduction
- Scope of work (services to be provided)
- Result(s) to be achieved
- Capacity requirements, including size and timeframe
- Referrals to interested vendors.
Consider inviting a vendor to bid on your proposal if they’re someone you’re interested in learning more about.
Following the proposal deadline, create a list of vendors who meet your requirements the best. Host at least one or more meetings with each vendor to better understand their strengths and weaknesses, the advantages of selecting their proposal over others, as well as the potential drawbacks of working with them.
You can also discuss pricing and make final adjustments to the contract during this meeting.
Do not be afraid to adjust the RFQ requirements if none of the companies are able to meet your requirements. You won’t be able to find a vendor that way. You can save a lot of time and hassle by getting this step right from the start.
Step 3: Negotiation of the Contract
You will be able to ensure the success of the relationship by incorporating your contract. As you determine how to proceed, the contract should help clarify any issues that may arise. Following the contract’s fine-tuning, you can now implement vendors and configure payment terms.
There is still time for negotiation until a contract is signed. Make sure you don’t let other qualified vendors go until both parties have signed off on the deal. The contract must include the following:
- Both parties have agreed to the terms
- Services outlined in the contract
- Service execution dates
- Goods and services costs
- You may also want to address other legal points, such as confidentiality, product ownership, how data will be handled, governing law, and non-compete agreements.
Each company should consider minimizing its financial, legal, and operational risks while negotiating favourable terms. If there are any future issues, you should be diligent about covering all bases.
Step 4: Onboarding vendors
It’s time to onboard your new IT vendor once both parties have signed the contract. Adding the company to your business network maximizes efficiency and streamlines processes as part of this step of your IT vendor management strategy.
Be sure to obtain insurance details and tax information from your vendor, and to add them to your internal business systems, such as payables. You must ensure that all parties know when and how invoices will be submitted and how payments will be made.
Make sure your vendor has access to the right software, along with login information, if they need access to specific programs. The vendor may need to learn how your company operates in greater detail as a result of some training and knowledge transfer.
Step 5: Monitoring the performance of IT vendors
Your company’s needs were laid out in the RFP or RFQ. Now comes the next step in IT vendor management: it’s time to create key performance indicators (KPIs) to assess the performance of your vendors. In businesses, dashboards or balanced scorecards are often used to define and evaluate metrics spanning from cost and delivery to quality and more.
When issues arise during a project or service, companies should be open and clear about their expectations with their vendors. Ensure that vendors are aware of the metrics against which you evaluate them and what success means to them.
Scheduling meetings in advance, whether they’re weekly, monthly, or quarterly, can help all parties stay on the same page, so you can avoid any potential issues early on and communicate more effectively.
Step 6: Managing vendor risk
Vendor hiring is not without risk. Whenever possible, risk should be understood and mitigated. Establish a framework for how you will control risks related to security, privacy, compliance, and other areas. If a breach occurs, describe the remediation actions.
It is critical to success to manage risks, especially when it comes to IT. Security and compliance risks are common in an increasingly online world. Provide a specific action plan for what you will do when you learn of a security breach and ensure your vendor does not disrupt your business operations.
Among the best practices are:
- Keeping a list of vendors
- Responsible for risks
- Assessment of vendors
- Manage risk in multiple ways, including auditing
- Prepare for contingencies
Remediation strategies may never be required, but having one and keeping it current can contribute to protecting your reputation and finances.
Step 7: Managing vendors on an ongoing basis
Managing the relationship with your vendors is essential once they’re in place. Updating your strategy and communicating changes to your company’s goals, as well as providing feedback are crucial to a partnership that benefits both organizations.
- It’s all about communication:
Regular meetings with vendors should be established. The cadence can be more frequent, to begin with, and then as the rhythm grows by understanding expectations and knowing the ropes, it may naturally become less frequent. It is important to keep meetings brief and to the point since they allow you to share your company’s plans and goals.
- Build a long-term partnership:
A long-term partnership with your vendor is ideal, as your quality may suffer if you switch vendors frequently. Both parties must understand operating structures and business models to avoid service gaps. In essence, building a long-term partnership is a win-win situation for you and the vendor since the vendor is more likely to commit to giving you preferential treatment and to ensure your success.
- Ensure Value:
It is essential to have your vendor deliver the results they promised and contractually agreed to. Ensure you’re getting quality service by watching similar companies or individuals. Immediately address any complacency you notice. You should encourage your vendor to treat you as a new customer to achieve set goals and metrics.
The businesses they serve rely on vendors to provide needed and valuable services. As well as streamlining processes, outsourcing assists companies in maintaining compliance and enhancing efficiencies.
It is a tall order to manage IT vendors properly. Still, once you have a framework in place for vendor management, it will benefit your company for years to come (as long as it is updated periodically).